NOTE 11 – INCOME TAXES
The Company uses the liability method, where deferred tax assets and liabilities are determined based on the expected future tax consequences of temporary differences between the carrying amounts of assets and liabilities for financial and income tax reporting purposes. During 2016 and 2015, the Company generated no taxable income and incurred no total income tax provision in either year. The resulting net operating losses have been carried back to prior years resulting in an income tax refund of prior taxes paid, and an income tax benefit.
Internal Revenue Code Section 382 limits the amount of net operating losses that can be carried forward after a change of control. The triggering event that occurred on July 20, 2016 may result in a limitation of the Company’s net operating loss carryback. The Company is still assessing the impact that the Section 382 limitation may impose.
The (benefit) provision for income taxes consists of the following for 2016 and 2015:
| 2016 | 2015 | |||||||
| Current: | ||||||||
| Federal | $ | (290,000 | ) | $ | (151,276 | ) | ||
| State | (15,149 | ) | (45,497 | ) | ||||
| Deferred | ||||||||
| Federal | (120,929 | ) | - | |||||
| State | (22,458 | ) | - | |||||
| Income tax (benefit) provision | $ | (448,536 | ) | $ | (196,773 | ) | ||
At December 31, 2016 and 2015, the Company’s deferred tax assets (liabilities) are as follows:
| 2016 | 2015 | ||||||
| Changes in mineral interest carrying values not | |||||||
| deductible for tax | $ | 106,400 | |||||
| Deferred gain on mineral asset sale | (68,000 | ) | |||||
| Deferred taxes on unrealized gains | $ | (143,387 | ) | - | |||
| Net operating loss carry forward | 450,057 | - | |||||
| Total deferred tax asset | 306,670 | 38,400 | |||||
| Allowance for deferred net tax asset | (306,670 | ) | (38,400 | ) | |||
| Net deferred tax asset | $ | - | $ | - | |||
The income tax provision differs from the amount of income tax determined by applying the Federal income Tax Rate to pre-tax income from continuing operations due to the following items:
| 2016 | 2015 | ||||||
| Income tax (benefit) provision at statutory rate | $ | (722,198 | ) | $ | (295,449 | ) | |
| Effect of state income taxes | (101,999 | ) | (58,221 | ) | |||
| Change in valuation allowance | 268,270 | - | |||||
| Debt conversion costs | 210,000 | - | |||||
| Other differences, including meals | 2,202 | - | |||||
| Tax return to tax accrual adjustment | 38,576 | 156,897 | |||||
| (305,149 | ) | (196,773 | ) | ||||
| Deferred taxes on unrealized gains | (143,387 | ) | - | ||||
| Income tax (benefit) provision | $ | (448,536 | ) | $ | (196,773 | ) | |
At December 31, 2016, the Company has federal net operating loss (“NOL”) carry forwards of approximately $1 million that expires in 2037. In addition, the Company has State net operating loss carry forwards of approximately $1 million that expire in 2024 and in 2037.
At December 31, 2016 and 2015, the Company had deferred tax assets arising principally from net operating loss carry forwards for income tax purposes. As management cannot determine that it is more likely than not that the benefit of the net deferred tax asset will be realized, a valuation allowance equal to 100% of the net deferred tax assets has been recorded at December 31, 2016 and 2015.
During the years ended December 31, 2016 and 2015, there were no material uncertain tax positions taken by the Company. The Company’s federal income tax filings are subject to examination for the years 2014 through 2016. The Company has no unrecognized tax benefits at December 31, 2016 or 2015.